Stimulating Discussion

Reduction or phase-out of city’s gross receipts tax could determine future of business in Los Angeles.
By Larry Palmer
Monday, March 18, 2013

This election year, everyone in Los Angeles is talking about business. How do we make Los Angeles more attractive for growing companies? What can we do to create more quality jobs? What is the right recipe for strengthening our local economic recovery? Stakeholders across the city are demanding answers to questions like these every day, as this year’s city candidates ramp up their bids for elected office.

Specifically, we have seen a lot of discussion over the last few weeks about L.A.’s gross receipts tax, and whether we should reduce it or phase it out entirely for the sake of promoting local business growth.

The gross receipts tax is exactly what it sounds like – a tax on all businesses operating in Los Angeles that corresponds with a company’s gross revenue. The greater a company’s revenues are, the higher its tax liability.

On one hand, reducing or eliminating this tax would ease the financial burden on growing businesses and potentially entice more companies to move their operations – and their jobs – to Los Angeles. The two mayoral candidates – City Councilman Eric Garcetti and City Controller Wendy Greuel – have both backed some kind of business tax reduction, and the city’s Business Tax Advisory Committee released a report recently proposing a 15-year phase-out of the tax.

But other city leaders – including Austin Beutner, Mayor Antonio Villaraigosa’s former jobs czar, and former mayoral candidate Kevin James – have a different view. They point out that making the decision to phase out the gross receipts tax right now would be irresponsible, because this tax accounts for one of the struggling city’s primary streams of revenue.

In looking at this issue – regardless of where you stand on business tax reform – the question for business owners and investors is simple: What role does this public discussion on the gross receipts tax have to play in our thinking about local investment and the future of the L.A. economy?

It’s complicated

As much as we’d like there to be a simple answer to this question, the fact is that it’s complicated, because we know very little about how changing the gross receipts tax would impact the local market specifically. We also don’t have any way of knowing for sure whether the resulting business growth would generate enough city revenue to make up for the losses from the tax, or even allow enough to balance the budget.